Q-11. Can You Measure Your Product's True Sales Potential?
Never estimate your sales based on a percentages of the total market size. For example, don’t project that if you can capture 1% of a billion dollar market your sales could be ten million dollars. Projecting retail sales starts with counting the number of “front doors” in your target market. That means how many stores can you reasonably expect to sell your product to and how long will it take. Then you can begin to estimate your actual sales from month to month and year to year.
You aren’t Proctor and Gamble, so don’t worry about total numbers of consumers. Your basic target market size, or potential audience, depends on: 1. the number of retail stores and websites where you can place your product; 2. How much they will initially buy, and 3. How much and how often will they reorder? For instance, if you make a $200 sale to a single store, and by the end of a month they have sold 25%, their monthly sales are $50. If that store reorders $50 at least twice you begin to see a predictable pattern. Now, one store owner may think that’s great, but another owner may want a 50% sell-through rate to justify reordering.
All retailers have their own sell-through expectations, so ask buyers what they consider good sales for their stores. Most retailers want to turn their inventory at least four times per year. High traffic stores with high rent payments may want six or eight turns per year. That means the reorder on your initial $200 sale would need to be closer to $100 per month rather than $50 to keep your product in the store.
Product life cycles generally fit the shape of a bell curve. You have a growth stage, a leveling-off stage and eventually a decline until sales level off to a lower steady rate...or become obsolete. Most of our products lasted from three to four years. Sneakers Balls is still selling well after 28 years. Extra Life has lasted 20 years. Ballmania ten years. Sugar Free Cards lasted ten years. The Incredible Long Letter Stationery lasted five years.
Estimating sales of a new product is difficult if not impossible until you have some repeat orders under your belt. Whatever you do, don’t rely on your initial sales into the store to project your future sales. For example, if you sell 100 stores an initial order of $200, don’t expect the reorder to be $200 within a month. We sold a product to Walmart with an opening order of one million dollars. Their first reorder about a month later was only about $180,000. Planning inventory when you have a big swing in the size of your orders is one of the greatest challenges you will face in business.